The present value of an investment must be computed by discounting cash flows at the internal...

The present value of an investment must be computed by discounting cash flows at the internal rate of return.

True

False

Expert Solution

rate positively ... let me know if you need any clarification.

statement if False : The present value of an investment must be computed by discounting cash flows at the internal rate of return

Explanation - Present value of an investment must be computed by discounting cash flow at required rate of return and not the internal rate of return.

jeff jeffy answered 2 years ago

Present Value and Discounting What do we mean by the present value of an investment? The...

Present Value and Discounting What do we mean by the present value of an investment? The process of discounting a future amount back to the present is the opposite of doing what? What do we mean by discounted cash flow, or DCF, valuation?

An investment costs $200,000. If the present value (PV) of all the future cash flows is...

An investment costs $200,000. If the present value (PV) of all the future cash flows is $175,000, which of the following statements is correct? a. The project should be rejected since the Profitability Index is less than 1. b. The project should be rejected since the NPV is $25,000. c. The project should be accepted since the Profitability Index is greater than 0 d. The project should be rejected since the NPV is -$175,000.

Consider the following investment that has these cash flows and net present value. Using the above...

Consider the following investment that has these cash flows and net present value. Using the above information, what is the break even cash flow for year 0, year 1, and what is the pre-discounted value? Year 0 1 2 3 Chase flow -$16,775 $4575 $5500 $9180 Discount rate 6.50% PV factor 1 .93897 .88166 .82785 NPV: -$30.44

A-12 Present Value of Cash Flows Star City is considering an investment in the community center...

A-12 Present Value of Cash Flows Star City is considering an investment in the community center that is expected to return the following cash flows: Use Exhibit A.8. Year Net Cash Flow 1 $ 32,000 2 62,000 3 92,000 4 92,000 5 112,000 This schedule includes all cash inflows from the project, which will also require an immediate $212,000 cash outlay. The city is tax-exempt; therefore, taxes need not be considered. Required: a. What is the net present value of...

(Present value of annuities and complex cash flows) You are given three investment alternatives to analyze....

(Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment Alternatives: End of Year A B C 1 10,000 10,000 2 10,000 3 10,000 4 10,000 5 10,000 10,000 6 10,000 50,000 7 10,000 8 10,000 9 10,000 10 10,000 10,000 Assuming an annual discount rate of 20 percent, find the present value of each investment. a. What is the present value of...

1. Cash Flows and Present Value: a) Briefly describe the consistency principle in Discounted Cash Flows...

1. Cash Flows and Present Value: a) Briefly describe the consistency principle in Discounted Cash Flows Model. Discuss its application in evaluating a firm’s different sources of capital (debt, equity and firm). [8 Marks] b) Discuss the specialty of FCF and WACC in terms of the consistency principle. 2. Capital Structure Question a) Briefly define the term of Business Operational Risk and discuss its major risk elements or components (what activities are related to the operational risk) [6 Marks] b)...

Net Present Value Method, An index computed by dividing the total present value of the net...

Net Present Value Method, An index computed by dividing the total present value of the net cash flow to be received from a proposed capital investment by the amount to be invested.Present Value Index, and Analysis for a service company Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: Maintenance Equipment Ramp Facilities Computer Network Amount to be invested $679,831 $436,634 $209,605 Annual...

What is the internal rate of return (IRR) on an investment with the following cash flows?...

What is the internal rate of return (IRR) on an investment with the following cash flows? Holding period 5 years. Round your answer to nearest 0.25%. Please show work (NO EXCEL) Year Net Income Purchase Price $4,000,000 1 $250,000 2 $300,000 3 $350,000 4 $400,000 5 $450,000 Resale $4,750,000 (net of costs)

The price of a security is the…?A the present value of all future cash flows....

The price of a security is the…?A the present value of all future cash flows.B sum of all future profits.C the future value of all the future profits net of interest payments and taxes.D the future value of all current dividends. geometric average of all past prices.

What is the present value of a stream of cash flows expected to grow at a...

What is the present value of a stream of cash flows expected to grow at a 10 percent rate per year for 5 years and then remain constant thereafter until the final payment in 30 years. The payment at the end of the first year is $1,000 and the discount rate is 5.00 percent.

Question